The Joit Company currently manufacturers an electrical component ror its product, a small kitchen appliance. The...

 

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The Joit Company currently manufacturers an electrical component ror its product, a small kitchen appliance. The company's variable unit manufacturing costs of making the electrical component are: Direct Material Direct Labour Variable Overhead $8.00 4.00 1.75 The total fixed overhead for the electrical component manufacturing process is $500,000. Sixty percent (60%) of this amount is an allocation of company-wide fixed costs that will be incurred whether the electrical component is made or purchased. The other 40% of the fixed costs represents rent and supervisory salaries that can be eliminated if we stop making the electrical component. The company anticipates demand of 20,000 units per year for the next several years. An outside company has offered to sell the electrical component to Jolt Company for $25 per unit. REQUIRED: 1. Should the company continue making the electrical component or should it buy it from the outside company? Quantify your answer on a per unit and annual basis given current demand. 2. Assume now that we could use the space given up if we buy the component to produce a different product. What is the minimum amount of annual income, if any, the new product would have to generate before your answer to Requirement #1 would change? The Joit Company currently manufacturers an electrical component ror its product, a small kitchen appliance. The company's variable unit manufacturing costs of making the electrical component are: Direct Material Direct Labour Variable Overhead $8.00 4.00 1.75 The total fixed overhead for the electrical component manufacturing process is $500,000. Sixty percent (60%) of this amount is an allocation of company-wide fixed costs that will be incurred whether the electrical component is made or purchased. The other 40% of the fixed costs represents rent and supervisory salaries that can be eliminated if we stop making the electrical component. The company anticipates demand of 20,000 units per year for the next several years. An outside company has offered to sell the electrical component to Jolt Company for $25 per unit. REQUIRED: 1. Should the company continue making the electrical component or should it buy it from the outside company? Quantify your answer on a per unit and annual basis given current demand. 2. Assume now that we could use the space given up if we buy the component to produce a different product. What is the minimum amount of annual income, if any, the new product would have to generate before your answer to Requirement #1 would change?

Answer rating: 100% (QA)

Lets break down the analysis step by step 1 Should the company continue making the electrical compon... View the full answer